Plz all part a b c d e 4.There are ten cars potentially available for a used-carmarket. Two of these cars are high quality. Seven aremedium quality and one is low quality.A high-quality car is worth $5000 to its owner. A medium-quality car is worth $3000 to its owner and a low-quality caris worth $1000 to its owner. Each seller has perfectinformation about the quality of his or her car.There are a large number of potential buyers. A high-qualitycar is worth $6500 to a potential buyer. A medium-qualitycar is worth $4500 to a potential buyer and a low-quality caris worth $2500 to a potential buyer. Competition among thepotential buyers will drive price up to the (expected) value ofthe relevant car(s). The potential buyers cannot directlyobserve the quality of any specific car, but they do know theproportion of each type of car that is on the market.a. If all three types of cars are on the market, what is themaximum amount the buyer will be willing to pay for acar of unknown quality? Show your work.b. Given the price you found in (a), which types of carswill be available on the market? Briefly demonstrateyour logic.c. Is the situation described in (a) and (b) a Nashequilibrium? Clearly demonstrate your logic.d. Describe the equilibrium for this market withasymmetric information. Determine which cars will beon the market and the resulting price.e. Briefly describe three ways in which this adverseselection problem could be resolved.

There are 10 carsHigh quality=2 carMedium quality=7 carsLow quality car= 1 carSeller valueHigh…

4. There are ten cars potentially available for a used-car market. Two of these cars are high quality. Seven are medium quality and one is low quality. A high-quality car is worth $5000 to its owner. A medium- quality car is worth $3000 to its owner and a low-quality car is worth $1000 to its owner. Each seller has perfect information about the quality of his or her car. There are a large number of potential buyers. A high-quality

4. There are ten cars potentially available for a used-car market. Two of these cars are high quality. Seven are medium quality and one is low quality. A high-quality car is worth $5000 to its owner. A medium- quality car is worth $3000 to its owner and a low-quality car is worth $1000 to its owner. Each seller has perfect information about the quality of his or her car. There are a large number of potential buyers. A high-quality

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter14: Transaction Costs, Asymmetric Information, And Behavioral Economics

Section: Chapter Questions

Problem 3.8P

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